Steel Authority of India Limited (SAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Steel Authority of India Limited Q2 FY '22 Earnings Conference Call, hosted by DAM Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Chandak of DAM Capital. Thank you, and over to you, sir.

Thank you, Aman. Good morning, everyone, and thank you for joining on a weekend for the second quarter FY '22 earnings call for Steel Authority of India. I'd like to thank the management for giving us the opportunity to host them again for this conference call. We have with us Director Finance, Mr. Amit Sen and his team. So without much ado, I hand over the floor to Mr. Amit Sen for the opening remarks, followed by the Q&A. Over to you, sir.

Ladies and gentlemen, it seems we have lost line for the management. We would request you all to stay connected while we reconnect them. Thank you. [Operator Instructions] We have the line for the management reconnected. Over to you, sir.

Okay. Good morning. First of all, I want to thank Mr. Vishal Chandak of DAM Capital for arranging the investor con-call, and I welcome all of you to the investor con-call for the financial results of SAIL for the second quarter of FY '22. So the result of Q2 was published last night, and I'm sure you've seen it and analyzed it. And I hope that the investors and analysts are satisfied with the results that have been delivered. The production and sales volume in Q2 has grown by 14.6% and 28.6%, respectively, from the Q1 level with a good improvement in the efficiency parameters also. The price rise on the back of strong demand, combined with the growth in volumes has given us the best ever turnover for any quarter. Profitability has also moved from strength to strength with best ever quarterly performance for all the profit parameters that is EBITDA, PBT and PAT. The Indian economy has shown tremendous grit and recovery from minus 34.4% GDP in Q1 of FY '21 to 20.1% in Q1 of FY '22. In fact, the quarterly growth has been witnessed consistently during all the quarters, leading to much lower-than-expected negative figures for FY '21 annual. The impact of COVID-19 during the first quarter of FY '22 wasn't very significant because the economy continued to prosper. With the vaccination numbers swelling every day, the confidence in setting buildup for greater thrust of the economy. The revised forecast of global GDP by IMF during October 21 has not seen much change from the earlier forecast. During this quarter, the steel industry in India has witnessed one of the best performances in terms of volumes and more importantly, in terms of price realization. As the number of COVID cases went down since June '21, the revival has been quite strong in majority of steel-consuming sectors, though full credit recovery is yet to be reached. Sectors like automobile are facing shortage of chips leading to curtailment of production. Construction and Infra could not be full growth during Q2 due to monsoons but is expected to do well henceforth now that the monsoons are over and the period what the construction and infra generally see has come. The limelight, however, was stolen entirely imported coal. The astronomical increase in the coking coal prices have seen the primary steel producers like us steady at a significant increase in the costs... [Technical Difficulty]

[Operator Instructions] I'm sorry, ladies and gentlemen, it seems we have lost the line for the management again. We would request all of you to stay connected while we reconnect them back. Ladies and gentlemen, we have the line for the management reconnected. Sir, over to you. You may please go ahead.

Okay, I'm not sure at which point I got disconnected, but I'm just carrying on from wherever I left off. So now that the monsoons have repeated and the festival season has kicked in, the demand growth from construction and infrastructure, wire rod, et cetera, is likely to improve, which will lead to good prospect for SAIL. The performance in Q2. The revenue from operations on a consolidated basis was INR 26,828 crores. Our consolidated EBITDA was INR 7,290 crores. Consolidated PBT was INR 5,795 crores and the consolidated PAT was INR 4,339 crores. All these are significant growths over the previous quarter as well as Q2 of the last year. For the 6 months ended September 30, on a consolidated basis, our revenue from operations is INR 47,471 crore and EBITDA INR 14,031 crores, PBT 11,007 crores and PAT INR 8,236 crores. Turnover and profitability has been the highest during the quarter. Borrowings have reduced by INR 7,809 crores as compared to June 30 and now stands at INR 22,478 crores as on September 30. The debt equity ratio has been reduced to 0.44, and the debt-to-EBITDA ratio has come to -- has come below 1, and it is now at 0.85. Inventory levels have reduced and today it is at 0.75 million tonnes, which is a reduction of 0.18 million tonnes during this quarter. Coming to wage revision. So the wage revision of all employees of SAIL, that is executives and the workers, was approved by the Board yesterday. Some part of the impact, in fact, a good portion of the impact has already been provided for in '21/'22 as well as in the quarterly results. Some incremental impact might come in the second quarter because of the actuarial valuation, which is a onetime book adjustment, but we'll discuss that in more detail when your questions come. The annual impact of wage revision, other than the actuarial impact, would be about INR 1,500 crores. So with this I want to hand it back to Mr. Chandak for opening the Q&A session.

[Operator Instructions] First question is from the line of Amit Dixit from Edelweiss.

Yes. Congratulations for a good set of numbers, sir. My -- I have 2 questions. The first one is on coking coal. So if you can let us know how much coking coal costs went up in this quarter, Q2? And what do you expect in Q3? Also, do you see any issues regarding the availability of coking coal in November?

Your first question was regarding the cost of coking coal in Q2 versus Q1?

Sir, versus Q1 and the outlook for Q3.

Okay. So in Q1, our average price of imported coking coal was INR 11,480. And in Q2, it has increased to INR 15,150. In Q3, it is going to be a bit more -- not bit more, it's going to be sizably more because the price in September was, I think the average was about $350 in September. In October, it opened at $400. So the impact of September will hit our financials in the month of November. There's a 2-month gap. So in the month of October, our average price of imported coal would be about INR 23,000. And in November, it could go even further.

Okay. That's helpful, sir. The second question is on the sales volume. If I see the sales volume growth that has been very impressive, in fact, better than some of your peers. So can you throw some more light on that, sir, where did you see the sales volume growth in Q2, which all like what all sectors and what was the export mix?

Our export was about 11% of our total sales, same as it was in Q1. We are increasing -- or we are trying to increase our export percentage, but we are also constrained by some of the difficulties that we are facing in the export market. In the Southeast Asia was impacted by COVID. In European market had completed its quota so hopefully, in -- going forward, starting from December, probably, our exports should pick up again. I mean at least those markets would open. But then as a commercial organization, we will take a call on which is more beneficial to us, whether we get a better realization through export or we get a better realization through domestic sales. That is a commercial cost, we'll take in seeing the relative difference between the 2 prices. So in Q2, most of the export markets actually were closed. So we did a lot of exports to Nepal and a few other countries, Turkey and a bit to Southeast Asia also. In Q3, we'll have to see as the markets open, how we export. But again, as I said, it would depend on the price differentials.

Sir, Q2, what all sectors did you see? I mean, because your volume was quite phenomenal. I mean better than many players in the country.

Yes. Actually, we cater mostly to the construction and infrastructure. That is our primary consumer. About 65% of our steel goes to this particular sector. Our presence across all the other sectors, that is, say, yellow goods or capital goods or automobile, it is small. So our fortunes actually are linked to the construction sector. When the construction does well, if the real estate does well, if infrastructure does well, we also do well. So as there has been some growth in that, our sales volume has increased. In fact, going forward now, demand probably will not be a constraint anymore as the infrastructure spending picks up, government is coming up with many schemes, monsoons are robust. And this is the time traditionally also in the past, the demand in BOF, construction and the real estate sector has always gone up. Demand should not be a constraint anymore. It's only how much we can produce.

[Operator Instructions] The next question is from the line of Rahul Jain from Systematix.

Yes. Sir, second half, what kind of volumes are we looking at given the FOBs that we had? And on iron ore sales, any progress there and what kind of numbers are we looking to get?

Just one. So iron ore sales in second quarter, we sold around 900,000 tonnes. And we booked some additional quantities through auction, another 3 lakh tonnes through auctions. So that will be there. Only thing is we are going a bit slow on the iron ore sales because the iron ore prices have fallen. And because we are a captive producer. So we are not actually compelled to sell [indiscernible] I mean the commercial call we take if the brands suits us, we can and if the price does not suit us, we can hold back. When the prices were low, we actually -- we did not put any quantity through auction. We're waiting for the price to go up. But anyway, we booked about 3 lakh tonnes through auction, and we've sold about 945,000 tonnes. And your first question was?

On the steel volume scenario, second half, what kind of numbers are we targeting?

Our annual turnover is expected to be at -- sales volume is expected to be around 17 million tonnes, of which we have already done about 7.5 million tonnes, so around 9 million -- 9.5 million tonnes would come in H2.

And sir, lastly, on the pricing scenario from the -- as was in second quarter, how has prices behaved, sir?

In this month, October?

Yes. Yes.

So in October, our average 6 months. In October, our long product prices was about 52,000, which is a growth of about INR 3,500 per tonne over Q2 average. And flat products, are priced -- average and I'm talking of NSR at the ex factory is 64,700, which is a growth of about INR 1,700 from the Q2 average.

The next question is from the line of [ Amar Sonthalia from AK Securities ].

Sir, my question is that what was the profit percentage you have derived from the sale of iron ore in the Q2?

That I cannot disclose.

Okay, sir. And sir, since the prices of steel is coming down in China. So how big the threat is for the steel price in India?

I don't think there is any threat as far as the prices are concerned. So the prices have been moving upward and now this particular season, the October to March season, this is when the prices and volumes and demand traditionally peak. So there is very little possibility of the prices coming down. Secondly, because of the coal prices going up, all the primary producers will like to at least -- not entirely, that is very huge. Some part of the increase will have to be passed on through price. So there is almost no possibility of a price reduction in the remaining part of this year.

The demand is quite strong?

Demand is strong and it is going to get stronger because this is a period when demand is always at its peak.

Okay. And sir, is there any chances of export? Because I think on a quarterly basis, India produces around 13 million tonnes of steel. And as per the con-call of JSW Steel, India will consume around 30 million tonnes in the Q3 and 30 million in Q4. So most of the steel which India produces would be consumed in-house and there will be minor export. Is it correct -- my assumption is correct?

See, our export in Q2 has been about 4.5 lakh tonnes. And like I mentioned in one of the earlier -- replied to the earlier question that the export market was actually -- some of the markets were closed, the Southeast market, Southeast Asian market because of COVID and the European market because of the quota and all that. Now that the markets will start opening up, so the possibility of exports will increase. But what I was trying to explain is, it's a call that every company will be taking including us on the price arbitrage between the domestic price and the export price. We will export if it is more beneficial in terms of price. So that is the price call we have to take, right? It's a price call if the domestic prices are better, if it is more lucrative, then it is more advantages for us to sell in the domestic market. If the export prices are lucrative, it will be more beneficial for us to sell in the export market. So the entire thing will now depend on the price differential between the export market and the domestic market.

And sir, one last question is, sir, with such a high coal prices, whether it will impact the margin in Q3?

Definitely, it will impact the margin. In fact, it has already impacted the margin in Q2 because the coal price has gone up more than what the selling price has gone up. And going forward, that margin will get squeezed because there's only a limited amount that you can pass on to the customer because if you try to pass on too much of the cost then the demand comes down. So...

Because I think the cost component of coking coal will be around INR 25,000 to INR 26,000 per tonne. And...

I just said that. I just said that. It will be around INR 2,500, INR 6,000. But the entire increase cannot be passed on. So some part of the hit will have to be taken by the primary producer. But again, the $400 where the coking coal prices are today, the PGP, the premium global prices, it may not stay at $400 throughout. That's because it's a very [ unusual circumstance ]. So hopefully, the prices will come down and then the EBITDA will start improving.

Next question is from the line of Rakesh Majumdar (sic) [ Rajesh Majumdar ] from B&K Securities. [Operator Instructions]

Congratulations on a very good set of numbers. So sir, I had a couple of questions on the July modernization. Regarding the URM and the BRM, what speed are we in, in terms of capacity utilization? Or has it just started? Or when will we see the impact of these coming on our results?

See, URM is operating at full capacity. We are only constrained by orders from rate. URM is not a constraint anymore, but there is one development in the URM that is, railway has developed a new product called the head hardened rail. It's called the 1175HT grade of rails. So we already have a line developed for that and the testing of that line is going on. The tests have already been successful so maybe from -- maybe starting from December, we'll be supplying head hardened rails to Indian Railways. But that will be a small proportion, maybe 30,000 tonnes or 40,000 tonnes in the remaining part of this financial year. Our basic ATT-grade rails will remain as a staple, along with some quantity of head hardened. But Railway will progressively increase the percentage of head hardened rail, our production in the head hardened rail is already ready and under testing. So URM is not an issue. BRM also is operating at very good capacity. I think it's operating probably at I think around 75% to 80% capacity. So these 2 plants, the capacity utilization is not an issue.

And then will the new capacity come on stream in Bhilai?

That is the 4th caster. You're talking of the 4th caster.

Casters, that's right.

4th Caster, actually, the contract has been given, work has started and the construction period is about 1 year. So let's say, by fourth quarter of the next financial year, production from that caster shall start.

Okay. So my basic question was sir, Bhilai used to be a larger contributor to our profit earlier. And now where we are seeing like Rourkela, Bokaro et cetera, coming up a lot after the modernization, we have not really seen those numbers from Bhilai as would have been expecting from the organization. So I was just wondering whether we are really seeing the full impact of the Bhilai monetization or there is something more to come in this?

Yes, I'll just explain it, it's not just about the amortization. Bhilai is working -- Bhilai has a possibility of increasing the capacity. It's not operating at full capacity. So that is there. There was some technical glitches. But more than that, it is a price differential. The Rourkela and Bokaro, they are 100% flat product. And the difference between the flat prices and the long prices today is about INR 16,000 per tonne. That is the reason for this profit differential between say RSP, Bokaro versus Bhilai. Bhilai even though it's a long flat mix plant, but it is 75% long product. And the long product prices have not grown in the same way as the flat product prices have grown. In fact, in Q2, it has actually come down a little bit. So that is the reason for price differential. But all other things remaining the same, Bhilai will still be the most profitable plant. There is some capacity ramping up to be done, which they are doing.

[Operator Instructions] The next question is from the line of Sumangal Nevatia from Kotak Securities.

The first question is on the privatization part. So the 3 specialties and which has been an asset on the profit and that's one. And the second part of this question is every now and then, I mean, in the media, there is a buzz that SAIL could be a potential candidate for privatization by the government. So if you can just share if there is any early discussions around that? And also, I mean, on the ground, what is the practical and the legal challenges for privatization of a big company like SAIL?

I'll answer your second question first. There is no talk at all of privatizing, any of the other units of SAIL. It is true that steel is in the non-privatize sector. That is a fact, but that does not mean that SAIL is going to be privatized or any of these units are going to be privatized. Other than the 2 units for which the disinvestment process is already going on for the last 2, 3 years. That is the Salem Steel Plant and the Bhadravathi Steel Plant. No other unit of SAIL is -- there is even any discussion that we know of that it used to be halved off or for sale as a whole. There are many challenges, but I don't want to go into that. All I'm saying is right now, there is no discussion on disinvestment of any other part of SAIL. The first question was regarding Salem Steel Plant and BSL. So the [ EUI ] as I told you last time, they have been received, they are under discussion. The bidders wanted to have a site visit that has also taken place. The size visit of BSL has taken place, the site visit of Salem Steel Plant is going to take place. And so it is still under the process, it is active and it's active that's all.

Any time line when you expect this to conclude?

[indiscernible] that we got from DIPAM is November 10 is the date of bid submission, but the date of bid submission has already been extended about 5 times. So the latest date we have now is November 10.

Understood. Understood. Sir, second question is on the incremental royalty which we are now paying for iron ore. So if you can just share what proportion of our captive iron ore volume comes under incremental royalty? And by when will the remaining iron ore will also come under incremental royalties of 150%.

So actually only the Jharkhand group of mines, they are impacted by this 150% royalty because their lease renewal has taken place after 2015. The other mines that means Odhisa group of mines and the Bhilai group of mines. They are not yet impacted by the 150%. So the Odhisa Group of mines -- sorry, the Jharkhand group of mines, which produces about 13 million tonnes annually, which is a quantity which has been impacted. Out of a total iron ore quantity of about 32 million tonnes.

Our next question is from the line of Ritesh Shah from Investec.

Sir, 2 questions. One is, how should one understand the employee cost for the quarter, the provisioning that we have done? And what should we build in for full year this year and next year? So that's the first question. I'll come to the second question, sir.

See the -- just one minute. Through the employee cost, and this is half year. The employee cost in the half year is INR 6,100. Q2 -- in the second quarter, we booked a total cost of INR 3,300 crores. This is -- as we have provided today, the -- as I told you that the valuation provision of the employees was passed by the Board yesterday. And since we already knew the impact, we've been building up the impact progressively through the provisioning. So that no incremental hit is expected going forward in Q3 and Q4. But there is going to be one accounting adjustment, which will hit the financials of SAIL in this year only. That is revaluing the entire actuated liability of gratuity and leaves for the employees because the gratuity and leave employee that we are carrying today has been valued at the earlier pay. Now as the pay increases, the entire liability gets revalued. So it is a onetime expenditure, noncash expenditure, which is going to hit our books. But that amount I cannot say because it has to be valued by the actuary. So that it will come, but it will not be there next year. Next year it will only be incremental. But this year, that additional impact will come, which will affect probably our -- maybe our Q4 then.

This is [indiscernible]. Sir, my second question is on -- earlier in the call, you had indicated about 10 million to 50 million tonnes of expansion plans. One is any update on this? Secondly, any views on Nagarnar, RINL and Himachal? How does it fit in with our overall strategy? And third is basically, our carbon intensity is very high at nearly 2.5x plus as compared to the industry benchmarks. So when we are looking at our expansion plan be it organic, inorganic, how do we marry carbon intensity also into it?

Okay. firstly, regarding RINL, NINL and Nagarnar, we have no plans. We are not there. We have no intention of acquiring anything through routes. Regarding our capacity expansion, as I had mentioned last time, we want to do it in 2 phases. In the first phase, say, around maybe 13 million to 15 million tonnes. And in the second phase, maybe 7, 8 years down the line, another 15 million tonnes. But this first 15 million tonnes that we'll be doing, we'll be doing it one plant at a time. So there'll be a pause between 1 plant, then we pause for about 18 to 24 months, see how the market is going, then go for the second plant. So maybe we'll start with 5 million tonne expansion in any one plant. So what we are doing is we are surveying all the plants. 3 plants have been shortlisted. Now we are going -- basically land is the primary factor on which we'll be taking our decision addition, how much free land is available at one place, contiguous so that we can't have patches all over the place. How much contiguous land is available and the proximity to the ore reserves. These are the 2 factors which will decide which plants we pick up first. But any case, it is going to be one 5 million tonne expansion that we'll be starting very shortly. And regarding your carbon emission, I really won't be able to reply. I'm not much aware of that.

The next question is from the line of Pinakin from JPMorgan.

Yes. Just going back to the earlier question on employee cost. Now this year has obviously been all over the place. But for FY '23, what should be the total employee cost guidance per management?

Yes. See, next year, as I told you, the onetime spike that will happen this year because of the actuarial valuation will not be there next year. Next year it will be a more normalized cost at the new pay scale. But then there is a retirement of about 4,000 people next year, normal separation. So adjusting for that and because induction of against that will be hardly 20%. So if you adjust for the net reduction in manpower at the new pay scale, our payroll expense should not be more than INR 10,500 crores. It will be less only.

Yes. Understood, sir. Sir, my second question is that SAIL has delivered an impressive debt reduction over the last 6 quarters with gross debt falling from INR 54,000 crores to INR 27,000 crores as per the presentation. Now going forward, with higher coking coal prices, there will be some reversal of the working capital. There will be some increase in CapEx. Sir, should we assume that the 2Q debt is broadly the truss for the leverage cycle? Or can debt further reduce from here?

Absolutely, reduce. It is not the truss of the debt reduction cycles. So we are now at INR 22,478 crores as on 30th September. The figures you were reading out includes the IndAS adjustments. So that is just the book and sale. The real debt is INR 22,470 crores on 30th September. And even though we have some high-value expenses lined up, but our target to become net debt-free by the first quarter of FY '23 continues.

So just to highlight -- just to confirm, when you're saying net debt free by the first quarter, that means that as a company you expect to reduce net debt by more than INR 20,000 crores over the next 3 quarters?

Absolutely.

Okay. Even with the higher wage the outflows related to wage provisions and working capital?

That should not be a problem because some part of the wage in fees will be booked and treated as debt, not so much in terms of debt and will also be helped by the realization and also be helped by the volume. Our volumes are expected to increase significantly going forward. So our target for debt reduction continues.

The next question is from the line of Nalin Shah from NVS Brokerage.

Congratulations to the management for the bumper results of SAIL in the Q2 and Q1 also. I have some few -- 3 questions. One is that coking coal as a percentage of your total cost of production, what is the percentage? And what is the percentage to the revenue? That is first. Second is that current year, you estimated that 17 million tonnes of target for the steel production and sale, can we have some idea about the next year '22, '23? And third, my question is that since you don't have a current tax liability, PBT is equal to PAT. Is my understanding correct, are we going to see for the full year, PBT is equal to PAT? And what more you know for the next year also, if there are carryforward losses available under the income tax?

Okay. I'll answer your third question, first. PAT is not equal to PBT. We have to make a tax provision because that assessment will take place. I think what you are trying to mean is that we don't have a cash outflow on income tax. We have carryforward depreciation and some losses, which will be set off. And earlier, we used to pay [ MAC ]. But last year, we opted for the new tax regime, that Section 150 BAA so where there is no [ MAC ]. So effectively, we are a nontax-paying company, but that does not mean we don't provide for tax. Tax assessment, will take place. So that was your first question. And that was your last question. Your first what was that?

Coking coal...

Coking coal as a percentage of our total cost in Q2 was 31% as a percentage of revenue our coking coal so 31% is as a percentage of total cost.

And last one was about the next year's target for steel production and sales as against 17 million tonne current year.

Next day, it will be slightly higher because when we say 17 million tonnes this year, we also account for what we lost in the first quarter because of the COVID second wave. So our next year, what we have projected so far is around 18 million tonnes.

All right. All right. And once again, congratulations for excellent set of numbers.

The next question is from the line of Mohit Bhansali from Bonanza Portfolio.

Sir, regarding expansion, you mentioned [indiscernible] will -- you will start production in December. One more Rourkela Steel Plant Hot Strip Mill was also planning for very long. So this is my first question. I will come -- I will ask next question after this.

Okay. So the Hot Strip Mill, the trials have started and in fact today, we will be doing the first rolling of a coil today we will be doing the first rolling of a coil. And we are hoping that by March, it will stabilize. Our commercial production from the new Hot Strip Mill will start by the month of March. March '22.

Okay. And sir, regarding your coking coal, are you trying to have your own source like ICVL and Mozambique developing their own coal like Tasra coal, ICVL and Mozambique or you're talking to government to help on because your cost is really on the very high side at coke rate as well is very high side compared to private company.

First, yes, our coke rate is high. For that, we are doing a couple of things, but our coke rate in Q2 has already come down by 10%. And some of the other co-related parameters like coal to hot metal and all that, they have all improved. But regarding our source of coal, we have the Tasra coal mine and already the mining from Tasra -- the internal mining of coal from Tasra is going to start. We have already -- we are also in the process of appointing an MDO for developing at Tasra and getting the full output from that. But the Tasra coal will start coming from next year. That is one. Then the ICVL, which is actually not exactly our company. It's a joint venture between 4 companies. Our share in ICVL is only about 38%. But ICVL -- so 38% is our share in the mining company of -- actually, ICVL is a holding company. The real mining company is called [indiscernible], in Mozambique, our share there is about 38% or 35%. Sorry, 35%. So it's not actually our company, but we get about 1 shipment each quarter, each -- one shipment each month from ICVL and that is about the maximum they can do because they are constrained by the transportation from the mines to the port. It's a single line, and they have huge issues -- the bottleneck is there. So that is all they can ship for us. So one Panamax per month is the maximum that ICVL can give, and we take that. Tasra has started. We have our other coal mine that [indiscernible], which is the [indiscernible]. We have some other indigenous coal that we from BCCL and all that, which is not much. It's about 1.5 million tonnes. So our dependence on imported coal is still there. What we are trying to do is we are trying to increase the basket, getting more vendors into our set of vendors. We are talking to coal supplies from Russia and from many other countries so that we reduce our dependence on one particular country. So all that we are trying to reduce our dependence on imported coal to reduce our dependence on a particular country and trying to expand other sources as well.

Our next question is from the line of [ Sameer ], as an individual investor. [Operator Instructions]

What was the capacity utilization across all plants in Q2?

I don't have it readymade just now. But I will just see that -- otherwise, we'll share it with you. I don't have it ready just now. It's about around between 80% to 90%, but I don't have the figures I'm just talking off hand.

Okay. Okay. Okay. And where do you see price realizations going till March then? Since China has reduced its capacity till March.

Ask Pankaj to -- Pankaj Mathur is our marketing person, he decides this.

See, as of now, in this particular month because of coal issues both in thermal as well as in coking coal, there has been a price rise in the market, both in lang product and fat products. As we go ahead, maybe exports will also improve after opening up of Southeastern markets and European markets. So as of now, because of the demand, the prices of the country are holding good. And the coking coal prices will continue to remain like this. The international players would also be compelled to pass on the prices the cost to the consumers also. So looking forward, the prices are going to move ahead from this level. Chances of coming down is very bleak.

I'll just quickly reply this previous question on capacity utilization. It is 91% across that.

Our next question is from the line of Noel from Ashika Group.

Yes, yes, just have one question regarding so for [indiscernible], what has been the CapEx so far. And I think previous quarter, we had mentioned that we are targeting a CapEx of about INR 6,000 crores per month -- sorry, for the full year to FY '22. So is that still relevant or there's been some revisions on that as FY '23 also is there a possibility that we could get some [indiscernible]?

So our CapEx in the 6 months of this year has been about INR 2,100 crores. Our target of about INR 6,000 crores still remains because many of the projects which have been awarded recently, their CapEx will come in Q3 and Q4. We are still expecting that our annual CapEx in this year, '21, '22, should be in the region of INR 6,000 crores.

And FY '23?

FY '23 is very hard to say. I can't guess now because many projects are in the pipeline, which one will go through, which ones will not, what will be the status of tendering that is hard to say. I can't take a guess on next year.

Okay. Yes. And also just one more thing. I just noticed in the presentation that we are actually drawing power from the exchange as well. So is it a normal occurrence or is it something that has happened in this current financial year?

Yes, this is Amit Agarwal. We have been drawing far from this power exchanges regularly. I mean, that is a question with respect to the cost. Sometimes, we find that the power exchange cost of par is coming lower than maybe the grid par. So we make use of that facility to keep the cost into check.

Our next question is from the line of Parth Varma from UTD Renewables LLP.

My question was basically, with regards to the [indiscernible] duty as well as the emphasized production on specialized steel, could you throw some light on that and how SAIL is benefiting from that?

You mean the PLI scheme?

Correct.

I'll ask Pankaj to reply.

Yes. As far as the imports of steel in the country, it is not only the specialized steel, but also some normal grade metals also come into the country. The government is targeting the specialty section. So it is basically, as you must be aware, it is in 5 categories. And for 5 -- the next 5 years -- for next 5 years, starting from '23 '24, the incentives will be rolled out. The scheme is very balanced and forward-looking. And I feel the -- all the producers, they have come up for a similar also a couple of days back. And they are -- it looks that everybody is going to participate both the bigger players as well as the smaller players. So going forward, the specialty steel production in the country will increase. But that is a challenge also in this scheme, I think that one part is that there are certain material like auto manufacturers, they import material from their parent companies or there are certain proprietary items which come into the country. So that is a challenge, whether they would like to ship to the domestic industry. And another thing is the what you call economic order quantity. See, there are certain international players who are having the specialty steel in stock and they can supply it immediately. Whether in our country, the person starts, or it requires a particular lead time and it requires particular economic order quantity also. So that thing will be a challenge. But going forward, I'm hopeful that in next 4, 5 years' time, India will be self-sufficient and rather not only supplying to the domestic industry, but we can also become a global value chain passover.

Right. So basically, you see the realization in terms of the balance sheet will only start coming in post financial year '23 and so...

See, it is like this we talk of saving, particularly I mean regarding the stainless steel, yes, we are planning 2, 3 things. One is definitely rails. Of course, it has to be applied with the government and then government will allocate a particular product to various companies. So that is the first thing that what comes into our coal. And then going forward, the window of our incentive scheme is from FY '23, '24 for next 5 years, we say a rather of -- expansion of 2 years also. So yes, the next 2 to 3 years' time, definitely, the impact of the higher realization would be coming to the balance sheets of all the companies and here also.

Our next question is from the line of [ Saket Kapoor from Kapoor & Company ].

Sir, if I could sum up firstly, sir, your -- our endeavor will be to be net debt free by the end of first quarter of FY '23? And taking into the trajectory of the pricing which is today and the volume which we are anticipating going forward? And with the increase in the coking coal prices and they being 31% of the constituent what should be the port and margin compression sir, that we are anticipating? And what has been the hike in the finished product prices to compensate the same? Or whether there will be an actual reduction in per-tonne EBITDA, If you could give some clarity on the same.

No, I mean, there has been a reduction in the per-tonne EBITDA in Q2 as compared to Q1, which is principally on account of the coal prices. Like our EBITDA per tonne of salable steel in the full -- in the half year has been INR 18,300 crores. And in Q1, it was about INR 20,000 crores. So there has been a reduction in the per tonne EBITDA. So the only thing is that the rate at which the coal prices are increasing is not the rate at which the selling price of our finished products are increasing. So that differential actually will eat into our EBITDA. The EBITDA will come down. EBITDA will come down. And because I said earlier also that you cannot pass on everything to the customer. So something we'll have to absorb in the interest of the market. But again, we are hoping that this price of $408, which is there today is not a realistic price. I don't know what it is based on, but it's definitely not a realistic price. And I don't believe that it will sustain for the next 6 months. In the past also...

[indiscernible] no, no you complete, sir.

I'm saying in the past also, we've analyzed the data for the last sort of 8, 9 years. And we have found that 2 or 3 times there has been a very sharp increase in prices and followed by very sharp fall in prices. So it was like a spike. So this time also, there has been a very sharp increase. And we are hoping that -- and I think yes we can say with some confidence that it will not pay a $400 forever. And maybe the only question is how far will it fall it will definitely not come down to $110 anymore. But whether it will stabilize at maybe $250 or $300, that is something we have to see. But if the coal prices come down, then the pressure on EBITDA will also reduce.

Sir, you had mentioned INR 15,000 to INR 27,000. I mean for the September quarter, our average was INR 15,000 in for the coking coal that moved up to INR 27,000.

It was INR 16,000 in October. It was INR 16,000 in October.

Yes, that is INR 7,000 to INR 8,000 per tonne.

Yes.

Okay. And to just to get an understanding of what has been the rise if we take the proportionate 31% and the increase in the flat and the long prices, I think it was INR 1,700, that is the hike we have taken for the month of October?

So in the case of long, I think I've already given this is that. It is about INR 3,000 increase in the price of long products between October and average Q2 and INR 1,700 increase in the price of flat products between October and average Q2. So the increase in price is not commensurate with the increase in cost. So that is the difference which will eat into our EBITDA until the coal prices get less.

Our next question is from the line of Ashish Kejriwal from Centrum Broking.

Sir, just to make clarification on employee costs, again, set around INR 1,600 crores additional impact. So the INR 1,600 crore is on FY '20 base because we have already included that in effort in FY '21 also. So if it is on FY '20 base of INR 1,600 crores-plus FY '20 comes to around INR 10,200 crores. And on top of it, whatever extra additions will be there. So my question is in FY '22, will we think that our employee cost can be above INR 11,500 crores?

No, first of all, this increase was not on FY'20 base. See, in '19, '20 -- just one second. See, our '19, '20 figure was something around INR 9,000 crores. So another say about INR 1,600 crores over that because if you look at 2021, we had already made a provision, so it is not INR 1,600 crores...

Yes, yes, I know that. That's what I'm saying...

INR 8,800 crores plus INR 1,600 crore, which is around INR 10,200 crores. And on top of it, whatever actual valuation could be there. The actual valuation is a onetime, is a onetime so that you don't have to consider. So INR 1,800 crores plus INR 1,600 crores is INR 10,400 crores. INR 10,400 crores give or take, after adjusting for some normal increases DA increase and the other increments and all that and... [Technical Difficulty]

Sorry, ladies and gentlemen, it seems we have lost the line for the management. We request you all to stay connected while we reconnect them. Ladies and gentlemen, we have the management line reconnected. Over to you, sir.

Okay. Just one thing. We just got that figure. I mean there was an earlier question on coal cost as a percentage of revenue. So coal cost as a percentage of total costs, we said was 31%, but coal as a percentage of total revenue is 24%. Somebody had asked that. So I'm just replying to that. So we can continue with Ashish please.

Yes. So that employee cost for FY '20 [indiscernible].

Yes. So it will be around say INR 10,500 crores give or take.

Our next question is from the line of [ Falguni Dutta from Jet Age Securities Private Limited ].

Sir, what is our coking coal cost per tonne of steel in Q2?

Coking coal -- no per tonne of steel. Per tonne of steel is how much. Just one second please.

Yes, sir. [Technical Difficulty]

And long, what, INR 49,170.

And sir, I have one more question. That is on the change in regulation that has happened in mining. So if you could just clarify as to the 150% extra royalty charge, which is there. So what change has happened? I mean, if you just could mention that change in regulation?

Change in regulation is already known the mines which have been -- where the lease has been extended after 2015, will have to pay an additional 150% of royalty. So that is there how it has impacted on this that? Now it has impacted on this, the 4 mines that we have in the Jharkhand state on these 4 mines, the lease was extended after 2015. So these mines have been impacted by this impact. As a 150% additional cost is coming from these mines only, which accounts all for 13 million tonnes out of about a total iron ore production of 32 million tonnes.

And for our other mines, when are they coming for lease renewal?

That is a long time tenure. They are not very -- I mean, different mines are coming at different points of time. So a couple of mines are coming maybe 2, 3 years down the line. Other mines are longer years, 2029, '30.

The next question is from the line of Srijan Sinha from Future Generali Life Insurance.

Sir, just wanted to understand management's thoughts on buyback versus dividend and we are delighted to get INR 4 per share dividend, buyback would have been better in my opinion. So just wanted to restate your thoughts on that.

No, actually, there are guidelines because we are a government company. So there are government guidelines on when we qualify for a buyback. So we have not yet fulfilled that condition. So buyback really was not an -- is not an option for us right now.

And what is the condition that is not yet fulfilled if you could help me understand that.

We need a free cash reserve of INR 1,000 crores.

Okay. Okay. And second sir, my question is on de-leveraging while your plans are quite ambitious to get net debt-free company by the end of Q1. I wanted to understand the underlying aversions on that because profitability is going to be under pressure particularly the coking coal prices, right? Are you building in some kind of receivable unwinding during the next couple of quarters?

No. We've done our projection going forward on how much we are likely to receive from our receivables, from our normal volume increases from the price increases minus the expenses that -- and including the incremental expenses on account of coal and the higher pay. So we have considered all that. And we've done a calculation, actually our target was actually to reduce our debt much more significantly by 31st March. That probably will get extended a bit. But we found that by Q1, all other things remaining same. I mean, assuming there is no further fall in demand or some drastic change happening, we should be able to achieve our net debt-free goal by, say, June of June of '22, yes.

Yes. Okay, sir, during this quarter, was there an unwinding of receivables from railways because this quarter, also the de-leveraging has been quite sharp?

Not much. I mean railway has paid us quite a bit, but they still have some major old outstandings which they have not been able to give us. So we are in constant touch with them from the -- along with the very senior rail locations. They have promised -- actually they need some additional support from the government, from the finance industry. We've already applied for that. And assuming that we will get that additional support. So a good part of our receivable should be liquidated in November. That is the thought so par.

Okay. And sir, one final question is, by when do we expect to start paying cash taxes? How much of deferred tax credit do we have, if you can help me understand that as well?

I think because we've opted for the new taxation where the tax liability has been reduced to 25%. So the tax asset that we are carrying in the form of carryforward depreciation and losses should pull us through for another maybe 7, 8 years.

The next question is from the line of Divyanshu Sachdeva from White Oak Capital Management.

Let this be the last question, please.

Sure., sir.

Sir, am I audible?

Yes, please.

Yes. Sorry, I joined the call a bit late. I just wanted to ask one bookkeeping question how -- I don;t know if the question has been addressed before, how much of the iron ore sales in this quarter?

945,000 tonnes .

Next question is from the line of Raashi Chopra from Citigroup.

But let me be the last question, please.

Just very quickly the volume number. Can you say the revenue number as well, please?

Revenue number, I don't have with you just now. We will get it and give it to you.

Okay. And the blended NSR you said was [ 552463 ] is that right?

Yes, yes, yes.

Okay. And fine that's one and one second was just to clarify on the wage increase, the Board has approved the increase, right? So this is no longer provisional. This is -- I mean this is going to be final. That's what you mentioned in the beginning, just to be sure?

So the system is that it goes to the Board, the board approves and when it is then to the ministry. The final approval comes from the ministry. So we've sent to the ministry. And we don't expect any change, most likely it will be approved as it is.

Okay. And when do we -- and the cash outflow, how does that work for the wage increase?

That actually depends on when we get the approval. So if you get the approval, say, next month, we'll be paying next.

Okay. So it's -- okay. I note that. And just one last question. You've already given us the realization increase in the month of October for longs and flats. Are you expecting more? I mean even though it will increase it is lower than the coking cost inflation, but are you expecting further increases in November, December in realization?

Pankaj?

Just one second. See, as of now, there has been a substantial increase in the price sales in the market both in long as well as in flat products. Going forward, it all depends upon the demand and supply. See, one thing is very clear, this season is particularly from October onwards to March, traditionally, it has been a good season as far as construction and infrastructure industry is concerned. And as you know, 65% of the full steel in the country goes into this sector. From the demand side, and automobile, of course, it was a bit weak in the last couple of months, but as we check shortage becomes easier, the automobile can also look up. So that is one as the demand side will pull up. Second is the export opportunity for the domestic player. Export opportunity is also likely to come up at opening up of southeastern markets as well as the new release of the European quota. So all in all, the prices from us can only go up when and there are no chances of coming down as such. Only thing then can be -- I mean I can think of is anything happened to the third wave of COVID. Otherwise, the market and demand and the prices are all hitting off.

Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Vishal Chandak for closing comments. Thank you, and over to you, Vishal.

Thank you very much, Aman, and thank you very much ladies and gentlemen, for participating in such large numbers for today's conference call as usual. We still have a lot of query pending, and I would urge them to connect with the Investor Relations at SAIL directly. I would, again, thank the management of SAIL for providing us with this opportunity and congratulations to them for a very excellent set of numbers. I would request Mr. Amit Sen for his closing remarks if any before we close. Over to you, sir, for the final remarks.

Thank you, Vishal. So nothing much to add, except that we are looking forward to much better times, much better numbers because traditionally, as I said, the third and fourth quarters have always been the best quarter for the steel industry and for SAIL also historically. So that time has come, monsoons are over. The COVID second wave is over. We expect our third and fourth quarter to be good. We expect to report very good numbers going forward. Just one small bit of information in case any of you have missed it, our half-yearly PAT, INR 8,145 crores is the highest PAT SAIL has ever recorded in a year. I mean, our earlier highest was, I think, INR 7,500 crores in 2007, '08. So in this half year, we've already exceeded that. We still have 6 more months to go. So we'll be looking forward to good times now. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of DAM Capital, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.